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Tree House Education Raises INR 19 crores In Pre-IPO Round

Tree House Education and Accessories Pvt Ltd, a school management company that operates a huge number of pre-schools across India, has raised Rs 19 crore from ON Mauritius, a subsidiary of Omidyar Network, and existing investors Matrix Partners India and Foundation Capital. The capital had been raised in a pre-IPO round of funding, the company announced. Tree House has also filed for an initial share sale to raise approximately Rs 150 crore.
According to the company's DRHP filed with the capital markets regulator, the monies raised through the public float will be used for expansion of its pre-school business (Rs.42 Cr), acquisition of office space (Rs.13.5 Cr), procurement of exclusivity rights to provide educational services (Rs.27 Cr), construction of infrastructure for educational complexes in Rajasthan and Gujarat (Rs.40.27 Cr), repayment of loan (Rs.28.58 Cr) and for other corporate purposes.
Matrix Partners has been consistently upping its stake in the company. Since August, 2008, Matrix Partners invested Rs 59 crore in Tree House in multiple rounds, including Rs 9 crore invested last year at Rs 110.53 per share. With its earlier investment made at Rs.63.16, its average cost of purchase comes to Rs 67.57 per share. Currently, it holds 36.35 per cent stake in the company, while the promoters, Rajesh and Geeta Bhatia together hold 41.34 per cent stake. In May last year, Foundation Capital also invested Rs 31 crore in the company, along with Matrix Partners.
Tree House recorded a total income of Rs 21.87 crore in FY2010, as compared to Rs 10.64 crore in FY2009. Its net profit in FY2010 rose to Rs 2.59 crore, as against Rs 50 lakh in FY2009. For the nine-month period ending December, 2010, its total income amounted to Rs 30.57 crore, with net profit of Rs 7.07 crore.
Currently, the company operates 177 pre-schools under the brand name ‘Tree House’ across 23 cities in India. Out of these, 108 are operated by the company and the rest through its franchisees. It also plans to launch 120 new pre-schools across the country by FY2014, which will be directly operated by the company. Tree House has also ventured into providing educational services to K-12 schools and caters to 12 schools with 5000 students, located in 4 cities. At present, the company has a team of 350 teachers in its self-operated pre-schools.
The private education sector in India is growing rapidly due to the rising demand for quality education. The organised market for pre-schools is expected to grow at a CAGR of approximately 45 per cent to reach Rs 45,000 million in 2015-16, from Rs 4,800 million in 2009-10, according to a CRISIL report.
CRISIL research projects the total number of private institutes to further reach 0.43 million by 2015-16 and private sector enrolments to touch 127.3 million during that period. Coupled with the demand for quality education and overall increase in income levels in India, the number of pre-schools and K-12 schools is definitely set to grow.
In a disclosure to the SEBI, the company has said that if the number of pre-schools in India increases, it may face competition from other pre-schools and K-12 schools which may adversely affect its revenues and profitability. Also, operating pre-schools and providing educational services to K-12 schools are currently unregulated and the government may introduce a regulatory framework in near future. Any such government regulation may adversely affect the company’s operating revenues, it has stated.